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Empirical Asset Pricing: Eugene Fama, Lars Peter Hansen, and Robert Shiller
Author(s) -
Campbell John Y.
Publication year - 2014
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12070
Subject(s) - capital asset pricing model , economics , predictability , asset (computer security) , financial economics , empirical research , empirical evidence , investment theory , positive economics , epistemology , philosophy , computer science , mathematics , statistics , computer security
The Nobel Memorial Prize in Economic Sciences for 2013 was awarded to Eugene Fama, Lars Peter Hansen, and Robert Shiller for their contributions to the empirical study of asset pricing. Some observers have found it hard to understand the common elements of the laureates' research, preferring to highlight areas of disagreement among them. In this paper, I argue that empirical asset pricing is a coherent enterprise, which owes much to the laureates' influential contributions, and that important themes in the literature can best be understood by considering the laureates in pairs. Specifically, after summarizing modern asset‐pricing theory using the stochastic discount factor as an organizing framework, I discuss the following: the joint hypothesis problem in tests of market efficiency, which is as much an opportunity as a problem (Fama and Hansen); patterns of short‐ and long‐term predictability in asset returns (Fama and Shiller); and models of deviations from rational expectations (Hansen and Shiller). I conclude by reviewing the ways in which the laureates have already influenced the practice of finance, and how they might influence future innovations.